Revisit, refresh, renew — for mortgages

Wouldn’t life be wonderful if we had a planned date to revisit our most important commitments and rethink or reconsider them a little? Just imagine how much would be saved in legal fees if marriage vows were only valid for five years. Or how many embarrassing tattoo removal laser treatments would go by the wayside. Since buying a home is likely our most expensive investment, it’s a good thing our mortgages come with a revisit-refresh-renew date. To ease the stress involved with mortgage renewal time, here are expert answers to three common questions.

A lot of questions can arise when you take on and then renew a mortgage. With so many options, it’s easy to understand why.

From receiving your first renewal notice to signing the dotted line and finessing your monthly budget, a lot of questions can arise when you take on and then renew a mortgage. With so many options, it’s easy to understand why.

Here are three golden nuggets of advice when it comes to renewing — and paying down — your mortgage.

Question: My bank just sent me an “early renewal” form for my mortgage. Should I sign it?

Golden advice: Agreeing to an early renewal is convenient, but you’re under no obligation to accept. Talk to your lender about the best rates and terms currently available. Then, talk to other lenders and see what they’re willing to offer. Remember, mortgages are NEGOTIABLE. It’s an insider’s secret that you can bargain down the rates. Mortgage lenders want your business (and will fight for it).

Question: If I switch to a variable rate, how does it work?

Golden advice: With a variable-rate mortgage, your rate fluctuates in line with your lender’s prime rate. How this affects you will depend on which type of variable-rate mortgage you have.

With one kind, your regular payment does not change. However, as your lender’s prime rate fluctuates, the amount of each payment that is directed towards the mortgage principal will vary. If rates fall, more of the principal will be paid down; if they rise, more of each payment will be directed towards interest.

With the other kind of variable-rate mortgage, the amount of each payment will change along with your interest rate.

Either way, the interest rate you’re quoted is likely going to be lower than the fixed rate for a mortgage of the same size and term.

Question: Can I pay off my mortgage faster?

Golden advice: Yes. Consider these tips:

• Reduce your amortization — the length of time needed to reduce the balance to zero. A shorter amortization means that your regular payments will be higher, but you’ll reduce your total interest costs and own your home, mortgage-free, much sooner.

• Switch from monthly to an accelerated weekly or biweekly payment schedule. With an accelerated payment schedule, you make the equivalent of one extra month’s payment every year. This reduces your total interest cost and helps you pay down your principal more quickly.

  The savings can be significant. For example, on a $200,000 mortgage at 4.5% amortized over 25 years, switching from monthly payments to an accelerated weekly schedule will save you more than $20,000 in interest over the life of the mortgage and reduce your amortization by almost three years.

• Take advantage of prepayment options. Most lenders will allow you to increase your regular payment up to 100% without penalty. The extra money goes directly to the principal. In addition, most lenders will allow you to prepay a certain percentage of the original mortgage amount on each anniversary.

• At renewal time, pay down as much as possible. When you renew, you’re allowed to pay down as much of the mortgage principal as you want without penalty.

Getting ahead with expert advice

When it comes to renewing your mortgage, answers can lead to more questions. That’s normal, especially when you have other financial goals in mind. Get expert answers by seeking out a financial professional. That way, you’ll get answers that are customized to your situation and address both your short- and long-term plans.

Owning a home feels great. But knowing you are on the right path to actually paying for it and securing a long-term investment — that is truly a beautiful thing.

 

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